How budget deal should help support US economy

Published on NewsOK Modified: December 18, 2013 at 5:12 pm •  Published: December 18, 2013
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WASHINGTON (AP) — The U.S. Congress did something Wednesday it hasn't done during three years of partisan warfare: Pass a budget deal that won't likely hurt the economy.

The two-year spending plan all but removes the threat of another government shutdown like the one that slowed the economy in October. Among other things, the agreement will roll back some of the automatic federal spending cuts that kicked in this year.

President Barack Obama is certain to sign the measure, which on Wednesday passed the Democratic-controlled Senate on a vote of 64-36. Last week, it cleared the Republican-run House by a similarly bipartisan margin of 332-94.

The result? Economists say the U.S. economy has a good chance to accelerate at its fastest pace since before the Great Recession struck six years ago.

Growth has plodded along at a 2.4 percent annual rate so far this year. Bolstered in part by the budget deal, the economy is poised to expand 2.9 percent next year, its healthiest pace since 2005, according to an Associated Press survey of economists.

"There was a lot of austerity in 2013," said Michael Hanson, senior U.S. economist at Bank of America. "We should have a lot less in 2014."

The budget agreement marks a sharp change from recent years in which partisan hostilities led to governance by crisis. Deals were struck between Democrats and Republicans only as the government neared an emergency. A last-minute deal in October, for example, removed the threat of a default on the national debt that could have triggered another recession.

The earlier budget deals helped shrink the deficit. But they've also squeezed workers and businesses by hindering growth. Higher tax rates, along with spending cuts, subtracted 1.5 percentage points from annual growth this year, according to the Congressional Budget Office. That's the difference between an economy limping along at 2.4 percent annual growth and one accelerating at close to a 4 percent rate.

With the new deal in place, economists estimate that the government will exert less of a drag on the economy. The drag on growth from federal policies should decline from 1.5 percentage points this year to 0.5 percentage point at the most, economists estimate.

The bill approves spending in 2014 at slightly more than $1 trillion, compared with the $967 billion mandated by the automatic spending cuts. It boosts spending by $63 billion over two years.

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